MCLEAN, VA--(Marketwired - Jan 16, 2014) - New Freddie Mac (OTCQB: FMCC) research shows that a commercial real estate borrower's loan default decision for an underperforming property is based on several factors, including property and loan characteristics, and economic and market conditions. The research, "Default Ruthlessness: Examining Borrower Default Behavior," analyzed and compared borrower default behavior for CMBS loans and Freddie Mac multifamily loans. The research can help debt investors better manage their investment expectations.
The analysis showed that CMBS borrowers are more likely to exhibit ruthless default behavior than Freddie Mac borrowers, and to default when facing a volatile market environment or a more stressed market. For CMBS loans, borrowers with terms of less than seven years were more likely to default. Borrowers with longer loan terms of seven or more years were more likely to keep the loan current despite weak property conditions because the property owner has more time to improve the property's operations and performance.
The research found that Freddie Mac borrowers are less ruthless in their default decisions. The results suggest that Freddie Mac's conservative approach to purchasing loans backed by strong properties with strong borrowers who have the ability to withstand adverse market situations results in a greater ability and commitment to support an underperforming property until the market or property performance improves.
"We found that if a borrower has access to capital and overall liquidity, they are less likely to default and will support the property until the market improves," said David Brickman, SVP of Freddie Mac Multifamily.
The research was published in CRE Finance World.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com. Twitter: @FreddieMac